Understanding your vulnerable customers

Looking at the responsibilities that companies have to ensure appropriate care, and the steps that they can take.

Australia’s Royal Commission investigation into financial sector misconduct has focused on vulnerable customers. But trying to work out who your vulnerable customers are isn’t as easy as you might think. And then what do you do to make sure you treat them right? Newsroom's Nikki Mandow talked to Roopa Raj and Adithi Pandit about how companies can ensure appropriate levels of care.

A teacher whose husband died recently ends up with significantly increased debt repayments because she didn’t understand that switching to paying only the minimum balance on her credit card (and not switching back) left her open to inflated interest costs.

A young man finds himself with expensive insurance cover that doesn’t suit his needs because he ticked the ‘terms and conditions’ box on the application form for a product bought through his smartphone, but didn’t actually read the small print. I mean, we all tick those boxes all the time, don’t we?

A low-income couple don’t realise their bank’s high net worth customers aren’t paying the same level of fees on their accounts, so never complain about them. But those charges mount up. Hundreds of dollars they could have avoided.

None of these people meet the traditional definition of vulnerable customers, says Deloitte risk advisory director Roopa Raj. They aren’t elderly or disabled, they aren’t illiterate, they speak English fluently. Yet all could in some ways be described as vulnerable.

“The potential group of vulnerable customers is wider than you think,” Raj says. “It includes people who are impacted because they have a knowledge gap around what they are buying. It might come from their socio-economic status, from a disability or being elderly. But it might not.”

Take someone used to dealing with their finances by going into their local branch and talking to a friendly banker. Suddenly, a telesales person is ringing them and giving them a hard sell. There is an argument that this is a vulnerable customer.

And people who aren’t generally vulnerable (and certainly wouldn’t consider themselves vulnerable) might become so temporarily or permanently through illness, redundancy, or an unexpected financial crisis.

“A vulnerable consumer is someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care,” says the UK’s Financial Conduct Authority in a 2015 report. “Vulnerability can affect people’s interaction with any consumer market, but it is particularly challenging in the context of financial services, due in part to the long-term nature of commitments, and the complexity of products and information.”

Deloitte partner Adithi Pandit heads the company’s social impact practice. She says when banks and other financial institutions talk about “knowing your customers”, many are working on the premise that the more they know about them, the more they can sell to them. The “do you want a drink and fries with that?” approach.

But they should also be working out what is best for the customer concerned, and in particular, who their potential vulnerable customers are, Pandit says. And then thinking about those vulnerabilities when they design new products, set fees, or establish new sales channels.

“That needs to be a deliberate step, and needs to involve working with vulnerable people, not for vulnerable people. In most financial organisations, the people round the table aren’t vulnerable themselves, and they haven’t got that lens of how their decisions are going to impact vulnerable customers,” Pandit says.

It isn’t easy, and in many cases executives and managers haven’t been trained to think beyond their immediate business needs.

But Raj says often the information that financial services companies need in order to think about vulnerable customers is already available within the company. An example is enquiry data.

“We know lots of vulnerable customers don’t complain, but they do call up to query things. ‘Why am I paying for this? I don’t understand what that product is.’ If an organisation can capture that conversation, along with the demographic data that sits with it, you start to infer who those vulnerable customers are.”

Another source of information might be refund data, Raj says.

“If you are saying ‘Oh sorry this isn’t the right product for you’ or ‘Sorry you aren’t eligible to claim against this product, we’ll give you your money back’ that might be an indication you have a problem with that type of customer.

“It’s about being strict and disciplined with the information you are collecting,” she says.

What can firms do?

Make use of in-house data (i.e. demographic) to be clear about identifying your vulnerable customers

Actively engage with vulnerable customers to see if there are any products and services currently offered that may not be appropriate

Engage with vulnerable customers directly as you design products and services

Develop a design toolkit that reflects best practices and principles for enhancing resilience and reducing vulnerability

Go back and validate on a regular basis

The potential risks for New Zealand financial services companies which don’t start getting their heads around vulnerable customers are only going to get bigger, Raj says.

Australia’s Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, and other investigations, have spent many hours focused on vulnerable customers. The stories from Australia have brought multi-million dollar financial and reputation repercussions for the companies involved.

But benefits for companies who identify vulnerable customers and look after them go beyond risk mitigation, Pandit says. Employees prefer to work for organisations which treat their customers well. And there are sales opportunities when companies design more flexible products for a wider range of people.

There’s also a longer term perspective, she says.

“If banks and financial institutions are here for the long run, their boards and their shareholders need to be thinking about what sort of bank or institution they want to be. I think if companies genuinely had that conversation around vulnerable customers, a lot of people would sign up to that.”

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